23 Jul Jon Cartu Announces PPP Loans Were Meant To Save Main Street — They’re Not
Forget “too big to fail.” There are businesses in America that might be too small to survive the pandemic.
The coronavirus has been a catastrophe for companies across the country, but the government’s small business loan program was supposed to help keep them afloat. For millions of entrepreneurs — those once hopeful and inspired enough to earn their living from small storefronts, restaurants, salons — the dream was to create a business that would sustain their families and help build communities. But for many of them, the end is in sight as the pandemic continues, and relief programs have failed to come to their aid, like rescue planes too full and far up to see all the people still drowning.
And while these small businesses are hanging on for dear life, investors are pushing up stock prices of large public companies, padding the wealth of America’s billionaires. The important question now is: How should the federal government and banks provide additional relief before Main Street goes out of business entirely?
The Small Business Association’s Paycheck Protection Program — the main lifeline to the country’s 30.7 million small businesses in the CARES Act — is a loan program that was only ever intended to be a short-term solution. The PPP is a low-interest loan to encourage small businesses to keep workers on their payrolls as unemployment soars nationwide during the coronavirus pandemic. The broad rule (there are many) is that if recipients use at least 60% to keep people employed at their regular salaries over the next few months, the loan would be forgiven.
But we are now weeks away from potential armageddon.
“Ultimately the PPP is still a short-term solution to a long-term problem. We are headed toward a financial cliff, and the urgency for a long-term solution is paramount,” said Sarah Crozier, a spokesperson for the Main Street Alliance Action Fund.
Part of the problem for many small businesses is that the rules are incredibly complicated, especially if you don’t have the resources to guide you through first the application and then how to get the loan forgiven.
The initial $349 billion in PPP funds was quickly spent, leaving out millions of the country’s most vulnerable businesses which didn’t have accounting teams to swiftly handle the paperwork (you can see the PPP application here) and which also weren’t priorities for banks helping larger clients (companies with as many as 500 employees were eligible). A second round of funding was then passed by Congress, but PPP’s imperfections surfaced with time: Some recipients found the ever-shifting terms for loan forgiveness impossible to satisfy (namely, using a loan to keep people on payroll during lockdown) and started giving back the money. And those who spent their PPP money now face the reality that the loan was not enough to carry them through a seemingly endless health crisis.
Banks have approved some 4.9 million SBA loans so far to small businesses (and some not-so-small like Kanye West’s Yeezy, Kushner family companies, and the Catholic Church). Despite this breadth, to say that Main Street is crumbling is not an overstatement. An estimated 100,000 small businesses were closed permanently by mid-May; in a large Yelp survey, half of the restaurants that were closed due to COVID-19 won’t reopen. In Brooklyn, half of small business owners recently told the Chamber of Commerce they would struggle to stay open for the next three months.
For those whose PPP loan applications were denied, the remaining options are few and the clock is running down. Struggling companies continue to look for aid, even though $132 billion from the second round of PPP remained unused by early July (so the SBA extended the application deadline to Aug. 8). The SBA did not respond to an inquiry about how many applications were denied, but one poll found that the overall PPP rejection rate was 30% and was even higher for minority-owned businesses. This has only served to exacerbate the inequalities faced by those who don’t have access to accounting teams and concierge banking services.
BuzzFeed News spoke to small business owners around the country whose PPP loan applications were either denied or who have yet to hear from their banks. They talked about the reasons they were ineligible (for instance, not being profitable in 2019, not having the required payroll documentation, or simply not filling out the forms correctly), how difficult the last few months have been, and the limited options they have left. All the interviews have been edited for length and clarity.
OKC Black Eats, a marketing and consulting firm for Black-owned restaurants in Oklahoma City
I applied for PPP in the beginning and it was confusing. They kept changing the process. I didn’t get an email confirmation; they tell you to write this [confirmation] number down, but I didn’t because I was expecting email confirmation. So I submitted a second application, and then I get an email several weeks later that they got a duplicate application and they would delete one of them. And then I got denied.
PPP is not a program suited for a startup business. I started OKC Black Eats, a marketing and consulting company, as a hobby in 2016 and incorporated in 2018. My first year of full-time entrepreneurship was in 2019, when I left corporate America, and I filed a loss. Because I showed a loss on my Schedule C, I was automatically disqualified — I found that out from my banking friends.
My office landlord has offered some flexible terms, like deferment or breaking up payments. But I haven’t heard of anyone lowering the rent.
I was frustrated because in my city and in my state, there is no support and intentionality to support Black-owned businesses. And I understand people being frustrated about larger companies receiving PPP loans. The disadvantage of being a small business is you don’t have a team of accountants and payroll people who could put together this application in hours. As much as PPP attempted to help Main Street local businesses, they didn’t consider that there needs to be a level of local support, and an allocation for smaller, black- and minority-owned businesses who will need more time.
I manage a black professionals group here and sit on some boards, and we said there’s not information being sent out to inform black-owned businesses in a timely manner, so we just started creating a digital resource list on grants and information on PPP. In…